President Reagan plans to ask Congress to deregulate the wellhead price of natural gas as of Sept. 30, an action that could cost gas users an additional $50 billion to $80 billion annually.
Budget documents obtained by The Washington Post disclose the plan in the course of explaining proposed cuts in spending by the Federal Energy Regulatory Commission, which regulates wellhead gas prices.
Whether Congress would approve full deregulation is uncertain, since it would add significantly to inflation and transfer such huge amounts of money from gas users to gas producers. How hard consumers would be hit would depend on what the market price turned out to be.
One energy expert, Edward Erickson, a North Carolina State University economist, predicted earlier this week that gas prices would jump from an average of about $1.65 per thousand cubic feet now to about $4.50 with deregulation. Some categories of gas already free of controls are bringing as much as $7, such as that being sold by Washington Gas Light Co. from an Oklahoma well it discovered last week.
With consumption of domestically produced gas at more than 18 trillion cubic feet a year, gas users would have to pay an additional $51 billion annually if the price went to $4.50. If it went to, say, $6.50, the added bill would be about $80 billion.
The documents containing the information on deregulation are being used as the basis for discussion within the administration of the budget cuts Reagan will offer as part of his economic policy package this month, as well as for consultation with members of Congress.
Sources at OMB confirmed that the documents had been prepared this week but stressed that final decisions on the budget cuts would not be made until later this week or early next week. Conceivably, the cuts proposed could total $50 billion for fiscal 1982 if all those still under consideration were approved, one official said.
Meanwhile, Reagan paid an extraordinary visit to Capitol Hill yesterday to meet with Senate and House leaders to make a case for raising the ceiling on the public debt and for his coming package of tax and spending cuts [Details, Page A2].
The budget documents obtained yesterday also indicate the administration is contemplating major spending cuts in most federally supported energy programs, including synthetic fuels, and utilizing a new form of "oil bonds" to finance filling the strategic petroleum reserve.
Spending on solar energy would be slashed by more than 60 percent from the $605 million level proposed in President Carter's fiscal 1982 budget. The new solar energy and energy conservation bank, created last year, would be eliminated.Other budget outlays for a variety of energy conservation programs would be cut in half from the $931 million Carter wanted. Research money for fossil fuels would drop from $765 million to $430 million, according to the documents.
They also indicate that Reagan plans to drop all subsidies for production of alcohol for automobile fuel, a political favorite of many members of Congress, especially those from farm areas producing grain, sugar beets or sugar cane that can be turned into alcohol. The move would trim outlays only $29 million in 1982, but would increase federal tax receipts. The principal subsidy for alcohol fuels is forgiveness of the 4-cent-a-gallon excise tax on motor fuel even if the fuel is gasohol, a gasoline misture that is only 10 percent alcohol.
Some of Reagan's energy advisers have urged him to deregulate natural gas as quickly as possible to encourage both more drilling for gas and more conservative by users. This reliance on the market mechanism to encourage both more supply and less consumption is the theme running through all the energy budget documents. The documents reflect the attitude that the federal government role should be confined to high-risk research and development projects with a potentially large payoff, not demonstration or commercialization of technologies.
"Supported by existing tax credits, individuals and business are already making substantial conservation efforts, which will be accelerated by oil and gas decontrol," one document notes in discussing the having of funds for conservation. "In light of these trends, much current federal activity is superfluous or imposes too great a regulatory burden on the public."
Therefore, the administration would provide no funds for development or implementation of building standards or standards for appliance energy efficiency, or for the utility-delivered residential and commercial conservation services which local electric and gas utilities are now required to offer.
Overall, the documents, which do not cover nuclear programs, propose cutting energy spending by $2.1 billion in fiscal 1981 and by $6.4 billion in fiscal 1982. The Carter budget called for outlays of $10.1 billion in 1982 for the programs covered by the documents.
The largest single savings would be $3.4 billion in 1982 for issuing "oil bonds" to pay for oil going into the strategic petroleum reserve. Since the oil would be in storage to be sold in an emergency, the documents say, "a special government security could be created, backed by the full faith and credit of the U.s. and tied to the value of oil at the redemption date [the date when it was sold]. These 'oil bonds' could be marketed to the public, and the proceeds used to both redeem the current government investment in the reserve (roughly valued at $4.2 billion at the end of FY 1981) and probably provide sufficient funds to maintain -- or even increase -- the present fill rate [about 100,000 barrels a day]."
The documents maintain that the bonds could be sold on a "no- or low-interest basis" because of the prospect of capital gains to the holder as the value of the oil rises. The budget savings assume the reserve filling at a rate of 230,000 barrels a day in 1982 and the world price of oil rising to $57 a barrel by 1984.
Natural gas is already gradually being decontrolled, with all newly discovered gas to be fully deregulated after 1985 under the terms of the Natural Gas Policy Act passed in 1978. The gradual price increases under NGPA were supposed to close the gap between gas and oil prices in 1985, but because of the doubling of oil prices in 1979, the present schedule will not close the gap.
Gas producers, of course, want faster if not immediate deregulation. The interstate gas pipeline companies and the local distribution companies fear that deregulation would cause many industrial companies to switch to cheaper heavy fuel oil, as many did during the first half of 1980 when heavy fuel oil prices were sharply depressed. Since the pipeline and distribution companies make most of their money by transporting rather than producing gas, they want to keep their volume of sales as high as possible.
This division among industry segments, as well as consumer opposition, probably would defeat any plan for immediate deregulation or perhaps even for a speedup of the NGPA timetable of price increases, congressional energy sources believe.